Q4 2024 FiscalNote Holdings Inc Earnings Call
Abby: Ladies and gentlemen, good afternoon and thank you for standing by. My name is Abby and I will be your conference operator today. At this time I would like to welcome everyone to the Fiscalnote Hldg
Abby: All lines have been placed on mute to prevent any background noise.
Abby: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press the star key, followed by the number one on your telephone keypad.
Abby: If you would like to withdraw your question, press star one a second time. Thank you, and I would now like to turn the conference over to the company. You may begin.
Speaker Change: Good evening. My name is Bob Burrows, Investor Relations for Fiscal Notes, and we are pleased to you all could join us. The purpose of today's call is to discuss this Fiscal Notes with quarter and full year of 2024 financial results and 2025 outlook.
Speaker Change: Joining me with prepared comments are Josh Resnik, President and CEO , and Jon Slabaugh, CFO and Chief Investment Officer.
Speaker Change: Other members of the senior management team will be available as needed during the Q&A session that will follow these prepared comments.
Speaker Change: Please note today's press release and related current report on Formate K are available on the company website.
Speaker Change: In terms of important housekeeping, it is important to mention the following
Speaker Change: During this call, we may make certain statements related to our business that are forward looking statements under federal securities laws.
Speaker Change: These statements are not guarantees a future performance that rather are subject to a variety of risks and uncertainties, or actual results could different materially from expectations reflected in any forward with these statements.
Speaker Change: For a discussion of the material risks and important factors that could affect our actual results, as well as the risks and other important factors discussed in today's earnings release, we refer to our SEC
Speaker Change: Additionally, non-GAAP financial measures will be discussed on this conference call.
Speaker Change: Finally, we use key performance indicators or KPIs in evaluating the performance of our business.
Speaker Change: These include Annual Recurring Revenue, or ARR, and Net Revenue Retention, or NRR. Once again, I refer you to the earnings release or the updated corporate deck for definitions of these important metrics.
Speaker Change: With that, I'd like to turn the call over to Fiscal Note CEO and President Josh Resnik. Josh?
Thank you, Bob, for that introduction.
And thanks to everyone for being here this evening.
Speaker Change: I'm pleased to join you as we cover key updates on the company, including our fourth quarter and full year 2024 financial results, our 2025 guidance and what lies ahead for fiscal
Speaker Change: With that, let's dive into the state of the company as we have continued to transform the business with clear focus and swift execution.
We've emphasized three crucial pillars of this transformation.
1. We are consistently and rapidly, expanding adjusted E. The Dub Marge.
Thank you for watching.
Speaker Change: We are managing our debt and accelerating our path to positive free cash flow.
Speaker Change: and three, we are building a strong foundation for long-term, profitable, sustainable growth.
I'll discuss each of these now.
1st
regarding adjusted EBITDA margins.
Speaker Change: Today, we announced $9.8 million in the Justice EBITDA for 2024, a year-over-year improvement of more than $17 million and $1,400 basis points.
This is an incredible accomplishment by our teams.
Speaker Change: It means that the company is operating vastly differently than in the past.
To get there, we've been extremely disciplined in our operations.
Speaker Change: We've streamlined our management structure, sunset, unprofitable, and non-core initiatives, and made additional changes throughout the organization that enable us to drive greater efficiencies.
Speaker Change: For 2025, we're guiding to an adjusted EBITDA range of $10 million to $12 million. Even after the impact of the anticipated debastiture of Oxford Analytica and Dragonfly.
Speaker Change: This is more than double 2024 adjusted EBITDA margins on a pro form of basis.
Speaker Change: We said before that we will focus on areas that are primed for profitable growth.
Simplify our product portfolio and reduce organizational complexity.
Speaker Change: Excellence matters in what we do, and as we simplify and focus, you're increasingly seeing that excellence manifested in our expanding margins.
Speaker Change: And as we drive growth in the future, which I'll address in a few moments [inaudible]
Speaker Change: We expect to see more of that revenue drop straight to the bottom line to fuel profit expansion and an acceleration towards positive free cash flow.
Jacky.
Jacky: regarding managing our debt and accelerating the path to positive free cash flow.
Jacky: We have committed to taking the steps necessary to improve our capital structure.
In 2024, we reduced our senior debt materially.
and with the anticipated debastiture of Oxford Analytica and Dragonfly.
Jacky: expected to close by the end of this month. We will pay down our senior debt by more than 60% in the past year.
Jacky: Just as we had previously committed to transforming our operations and achieving adjusted EBITDA profitability, which we did sooner than was expected of us.
Jacky: We are now equally focused on paying down our debt and working towards positive free cash flow.
Jacky: Accordingly, a direct outcome of this debt reduction is a proportional decrease in our anticipated cash interest payments.
Jacky: And as I just noted, we are continuing to expand operating margins and drive greater efficiencies across the business, meaning that a greater proportion of our revenue is dropping to the bottom
Jacky: And beyond operating margins, we also are focused on discipline management of capital expenditures.
Jacky: Where we expect to achieve greater efficiencies as we consolidate our policy products onto a single platform, policy notes, and deprecate multiple legacy platforms.
A collective result in these efforts. [inaudible]
Jacky: Lower Cash Interest Expense, Increasing Operating Margins, and Reduction and CapEx
Jacky: Is that we are accelerating the path to positive free cash flow.
Jacky: As John will discuss, our cash flow from operations improved significantly by more than $30 million in 2024.
Jacky: Our path and progress towards positive free cash flow is clear.
Jacky: and it should also be cleared by now that when we commit to a path, we apply relentless focus and determination to achieve it.
Third.
regarding our foundation for long-term, profitable, sustainable growth.
Jacky: On our last call, I explain that our investment in products will fuel future growth by impacting customer engagement, retention, and expansion revenue.
Jacky: This is our strategy. It is sound and it is working.
Jacky: I'll share more details in a moment and I'm excited to provide deeper visibility into what we're doing and how we know it's working.
Jacky: That said, I also want to be direct about our 2025 revenue guidance and how it fits within the context of our plans and progress.
Jacky: Simply put, this year's guidance reflects in part the fact that the company's typical end of year ARR uptick did not materialize at the end of 2024
Needless to say, that falls short of our standards.
Jacky: We've moved quickly to address it, implementing key management changes that are already driving meaningful improvements in execution.
Jacky: At the same time, our investment in products, including the public launch of Policy Note in January .
Is Driving Momentum As I'll Discuss
The combination of these factors.
is impacting our leading indicators. [inaudible]
specifically Pipeline and customer engagement.
Jacky: Which should drive a return to ARR growth in the second half of this year and served as the foundation for sustained gap revenue growth in 2026 and beyond.
Jacky: We are confident in our past, and I will take you through exactly what is fueling our confidence in more detail.
Jacky: As I know that, in January of this year, we announced the launch of the policy note.
Jacky: Policy Note builds on fiscal note's decade of applying AI to policy and regulation.
Jacky: As an AI first platform that will consolidate all of our policy-related data and content via a single user interface.
Jacky: This is foundational for product-led sales and growth and will be a centerpiece for efficient, scalable, innovation for the future.
Jacky: While it's still early in policy notes lifecycle, we're already seeing strong engagement and promising adoption trends.
Jacky: Customers using the platform are actively leveraging our advanced AI features and more importantly finding real value in
Jacky: We're closely monitoring usage to refine experiences and enhance workflows in ways that will drive customer engagement and retention.
Jacky: Notably, we're seeing the new features and experience in policy notes, drive higher levels of customer activity, a strong signal of its potential to broadly increase both gross and net retention in the future.
Jacky: In addition, the qualitative feedback we're hearing from customers is overwhelmingly positive, with users highlighting the platform's intuitive experience and tangible impact on their organization.
Jacky: Since the launch of policy note, we've also seen greater momentum in sales and marketing, with increased inbound interest and a higher conversion rate as leads lose through the
More corporate clives are also committing to multi-year agreements.
Jacky: In the corporate sector, so far in Q1 of this year, to share a new logo ARR on multi-year contracts in our policy business is almost double what it was a year ago.
Jacky: This demonstrates the market's confidence in our offerings and our product roadmap, as well as our customers' expectation of continued reliance on our data, proprietary analysis and AI features.
Jacky: Additionally, the rise in multi-year commitments serves as a clear signal of anticipated improvements in gross retention, positioning us for stronger, top-line revenue growth in 2026 and beyond.
Jacky: A product transformation is not an overnight fix, but it is a lasting one.
Jacky: And especially here, where we're not just redesigning a product, but rather we're consolidating our platforms, creating an entirely new AI-forward experience.
Jacky: and establishing a culture of product excellence and product-led sales and growth across the company.
Jacky: We expect that the indicators of future revenue growth, some of which I just discussed, will continue to become more apparent over the course of this year, as we return to ARR growth and our momentum accelerates.
Jacky: which will be further reflected in Gap Revenue Growth in 2026.
Jacky: As for 2025, beyond these trends, we're also keeping an eye on market volatility.
Jacky: This is certainly true in the private sector, where macroeconomic unpredictability is likely to impact corporate buying decisions and timelines over the course of the year.
Jacky: In addition, unlike past years, we're also seeing some volatility in the public sector due to changes in the federal government.
Jacky: However, our platforms deliver essential data, information, and insights that enhance government efficiency
Jacky: A value proposition that remains strong as federal spending comes under greater scrutiny and that even serves to further the administration's goals of reducing overall government spend.
Jacky: By our estimates, the government saved $10 for every dollar spent with us, reinforcing the critical role we play.
Jacky: Given this, we currently do not anticipate these changes to have a material impact on our business. And in fact, we see potential upsides as agencies shift their operations and spending priorities.
Jacky: That said, the dynamic nature of the government landscape is unprecedented and the ultimate impact is difficult to predict at this time.
Jacky: Of course, we'll continue to closely monitor developments as the year goes on.
Jacky: Regardless of near-term variability, we're executing on a clear and compelling plan for long-term, sustainable, profitable growth.
Jacky: We have a diverse space of more than 4,000 customers, spanning a wide range of industries and market sectors.
Jacky: We solve complex global challenges that are becoming increasingly difficult for organizations to manage.
Jacky: Our transformational new product integrates the best in data, proprietary insights, and AI to deliver more powerful and efficient solutions for our customers.
Jacky: We sharpened our focus by continuing to improve and streamline operations and by the besting non-core businesses, ensuring that our teams can execute with excellence.
Jacky: Looking ahead to the future, we'll continue to leverage our technology and industry expertise to automate more and more aspects of policy and regulatory workflows, driving greater share of wallet and high growth for the long run.
Jacky: At its course, we are executing a proven, time-tested, playbook for success in information
Jacky: We provide data and content that solves the high value problems for end users.
Jacky: We offer insights via a technology platform with a best-in-class user experience and will acquire new users, retain those accounts, and expand relationships of the time.
Jacky: I'm extremely confident in our ability to do this and I'm excited for what the future holds for Fiscalnote.
Jacky: With that, I'll now turn the call over to John to take us through the company's 2024 financial results.
Jon.
Jon Slabaugh: Thank you, Josh. Good afternoon, and thank you for joining Fiscalnote's 2024 year-end conference call. As Josh mentioned, we're pleased to announce that we met an exceeded previous financial guidance for 2024, and I will dive into some of the key drivers behind our performance.
Jon Slabaugh: Total revenue for Q4 2024 was 29.5 million dollars, the head of our forecast in lower than the prior year period, primarily due to the divestitureboard.org.
Jon Slabaugh: Subscription revenue remains the cornerstone of our business, and while flat on a sequential basis, it accounted for 92% of total in-quarter revenue consistent with our historical trends.
Now looking at some of the key performance metrics.
Jon Slabaugh: after adjusting for the impact of the ASL and board.org divestitures.
Jon Slabaugh: As Josh noted, we expect policy note to have a meaningful positive impact as 2025 unfolds and we're planning for ARR growth in the second half of 2025 that will translate into gap revenue growth in 2026.
Jon Slabaugh: For the fourth quarter, 2024, net revenue retention was 98% versus 99% in the prior year. This is in line with our historical trends in a metric we are focused on improving over time through continued product innovation.
Jon Slabaugh: Principal operating expenses in Q4 2024 continued to trend of year-over-year decreases, reflecting the benefits of efficiency measures first initiated in 2023.
Jon Slabaugh: and consistently carried forward across the entirety of 2024. We also realized cost savings following the boarded out of Oregon, ASL, divestitures, and we realized additional savings from sun setting a few small non-core products.
Jon Slabaugh: Cost of revenues decreased by $6 million or 53% in Q4 primarily due to previous technology-related amortization expenses that became fully amortized in 2024.
Jon Slabaugh: R&D decreased by 1.1 million dollars or 28 percent, sales and marketing decreased by just under 3 million dollars or 28 percent.
and GNA decreased by $4.5 million or 27% .
Jon Slabaugh: Taken together, total operating expenses in Q4 2024, stalled by over $11 million versus the prior year, or 24% when excluding the goodwill impairment charge recorded in Q4 2023.
Jon Slabaugh: on a performance basis, excluding non-cash charges in the impact of the divestitures of board.org and asal.
OPEX decreased approximately 1.8 million dollars or 6 percent. [inaudible]
Jon Slabaugh: Gross margins in Q4 2024 improved, primarily due to the amortization expense recorded and cost of sales fully amortizing earlier in the year. Our adjusted gross margin improved to 87% in Q4 of 2024 as compared to 83% in the prior comparable quarter.
Jon Slabaugh: Gap Net Loss for Q4 2024 was $13.4 million, significantly lower than the prior year period due in part to a large non-cash goodwill impairment charge recorded in Q4 2023.
In 2024, we did not record any goodwill impairment charges [inaudible]
Jon Slabaugh: Adjusted EBITDA was a positive $3.3 million higher than the prior year above our guidance of $2.5 million in the 6th consecutive quarter of positive adjusted EBITDA.
Jon Slabaugh: The improvement to adjusted EBITDA, even after the performance impact of the investiture of board.org and ASIL is the result of actions we've taken to improve operating
Jon Slabaugh: We will continue to increase operating leverage and realize additional efficiencies wherever and whenever possible.
Jon Slabaugh: A few full-year highlights in 2024 include Code of Revenue's worth $120.3 million, lower year-over-year due to the impact of the various divestitures in 2024, but slightly above our guidance.
Jon Slabaugh: Gross Margin came in at 79%, and adjusted Gross Margin was 86%, and in terms of profitability, adjusted EBITDA was a positive $9.8 million higher than the prior year and above the guidance of approximately $9 million.
Jon Slabaugh: This performance in 2024 represents the first full year of positive adjusted EBITDA in our history, an important milestone in achievement.
Jon Slabaugh: Cash and cash equivalents, including short-term investments at year-end, 2024, were $35.3 million.
Jon Slabaugh: And in terms of our debt stack, we ended 2024 with this substantially reduced senior term loan balance of $89 million following the two divestitures during the year.
Jon Slabaugh: In aggregate, we reduce this balance by $70 million over a one-year stand, clear evidence of our commitment to de-leverage the capital structure.
Jon Slabaugh: Simplified a product mix and focus on the core policy business, servicing more than 4,000 top-tier customers across the globe.
Jon Slabaugh: The senior term loan will be further reduced by the pending close of the recently announced asset sales.
Jon Slabaugh: And before I get to guidance for 2025, I want to take a moment and touch on one final important metric for 2024. Cash flow from operations was negative $5.3 million in 2024.
Jon Slabaugh: Finally, let me move to our forecast for 2025. For background and context, it is important to keep the following considerations in mind.
Jon Slabaugh: Our forecast incorporates the impact of the assumed completed divestiture of Oxford Analytica in Dragonfly Intelligence, initially announced in late February , which we expect to close later this month following the receipt of regulatory clearance.
Jon Slabaugh: Importantly, our 2025 forecast includes total revenues of approximately $3 million in an nominal amount of adjusted EBITDA from these two businesses in the first quarter of 2025.
Jon Slabaugh: Given these transactions, there are a few customary additional disclosures required in our 10k filing therefore we plan to file a form 12b25 to extend the 2024 form 10k filing deadline
Jon Slabaugh: This will give us a bit more time to finalize the additional disclosures, including full-year of performance financial information, giving effect to the transaction after closing.
Jon Slabaugh: Edson's transaction, we would otherwise be prepared to file on time and we expect to file by the extended April 1st deadline.
Jon Slabaugh: The forecast also reflects realization of additional efficiency initiatives, driving a substantially expanded adjusted EBITDA margin, more than double on a performance basis versus 2023.
Jon Slabaugh: These initiatives combined with a further reduction of our debt service costs will accelerate greater progress towards positive free cash flow.
Jon Slabaugh: We anticipate our new policy no platform to have an increasing impact on customer engagement and retention over the course of the year, as we migrate more users to the platform and offer additional enhancements, features and micro-products.
Jon Slabaugh: In turn, we expect this will have an increased positive impact on ARR across the year, with the weighting on the second half, contributing to a higher, more substantial revenue growth rate in 2026.
Jon Slabaugh: Finally, and as Josh alluded to earlier, our forecast is informed by our ongoing evaluation of current market volatility.
Jon Slabaugh: In particular, the private sector where macroeconomic unpredictability is likely to impact corporate buying decisions and timelines over the course of the year. In addition, it was informed by our assumptions regarding changes within the federal government.
Jon Slabaugh: A 2025 forecast reflects our current expectations based on the most recent information available and is subject to adjustment based on changes in business conditions across the year.
Jon Slabaugh: And for pacing across the year, we are also forecasting first quarter twenty twenty five total revenues in a range of twenty six to twenty seven million dollars and adjusted even of approximately two million dollars.
Jon Slabaugh: In summary, our business experience significant change in 2024 ended the year in a more stable and resilient position than at the outset of the year.
Jon Slabaugh: Our expectations for 2025 reflect the building strength and resilience of our streamlined and disciplined operating plan in focused product roadmap.
Jon Slabaugh: As we work to drive growth and retention in our customer base, we also look to realize increasing operating leverage and therefore expanding adjusted EBITDA, both in absolute dollars as well as margins.
Jon Slabaugh: Additionally, we will continue to control annual CAPX or managing in where possible reducing cash interest expense.
Jon Slabaugh: All in pursuit of accelerating the path, the positive free cash flow. That concludes my prepared remarks. I'll turn it over to the operator to begin the question and answer session.
Operator
Speaker Change: Thank you, and we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time.
Speaker Change: If you are called upon to ask your question and are listening via speakerphone on your device, please take up your handset and ensure that your phone is not on mute when asking your question. We ask that you please limit yourself to one question. Again, it is star one if you would like to join the queue.
Speaker Change: And your first question comes from the line of Jesse Sobelson with D-Boral Capital. Your line is open.
Jesse Sobelson: Hey everyone, thanks for taking my questions here. I was just curious on this new policy no platform. Would you be able to disclose how many of your existing customers have begun to adopt it since the January launch and what the initial feedback has been?
Speaker Change: But what exactly they're engaging with and trying to gauge what value they're getting out of the features that we have?
Speaker Change: and we're very pleased to see that they're engaging to a high degree with our AI features, including our AI assistant, our AI alerting and the like.
Speaker Change: and that helps tell us the value that they're getting out of it as well. So in other words, they're able to quickly get to the answers they're trying to get to, which is what proves out value to them. And as an example with our AI alerts,
Speaker Change: That is a good job of letting them know about things that weren't even aware that they needed to be tracking. So again, tremendous value for customers.
Speaker Change: So we're seeing them the levels of engagement that we like to see.
Speaker Change: Usage and in terms of benefits to their organization. So, you know, again, examples being discovering policy changes they otherwise would not have been aware of, and that's something that's highly valuable to our end users. So, we're continuing to monitor closely, looking at that data that helps inform future product development as well, and we'll be excited to move more customers over the platform over time.
Speaker Change: Great, I appreciate the detail there. Just one real quick one for me, and I'll jump back into Q. You've been a great job reducing debt this year, and earned your the completing $40 million asset sale, which is pretty material. Going forward, have you determined what the target leverage ratio for the business might be, and do you have any thoughts on how quickly you might be able to get there? And thanks again.
Thank you. Thank you.
Jon Slabaugh: Sure, Jesse is Jon and thanks for the question. We are thinking about both bringing the leverage down.
Speaker Change: I can't really give specific targets, but we do think about it in that context and want to bring the leverage down into the two to three times leverage range over this.
and a foreseeable future.
Thank you for watching!
Speaker Change: And your next question comes from the line of Zach Cummins with B. Riley Securities. Your line is open.
Zach Cummins: Hi, good afternoon. Thanks for taking my questions, and just sailing off of the balancey question. Once the divestment of Oxford, Analytica, and Dragonfly closed, hopefully at the end of this month.
Zach Cummins: Can you give us a sense of maybe what kind of the pro form of balance sheet would look like at that point? I know if you disclosed an anticipated amount you were you were hoping to pay down against the senior debt, but just curious if you give any sort of insight around that.
Thank you. Thank you. Thank you.
Some are limited when you talk about prospectively, but I think that-
Loint Dickert: Right, around $2 million per quarter, which I think is going to be helpful for us in the long term and there's, you know, we still have a couple of
Speaker Change: Subordinated Convertible Notes behind that and we'll continue to manage those and think about ways to deliver those over time as well.
Understood, and just my one quick follow-up.
Speaker Change: Just so I'm level setting kind of a pro form and expectation for the coming year. Within your slides that you provided, can you give us a sense of what all is stripped out of kind of the Q1 guidance and also the 2025 guidance when compared to those pro form around 2024 numbers? The Q1 guidance and expectation of a pro form around 2024 numbers?
The guidance for Q1 is our gap revenue guidance, so there's nothing really performed out. I think that you're talking about...
Speaker Change: Where we compare that to the performing number for the prior year.
Speaker Change: Dragonfly and Oxford Businesses in the first quarter that will kind of not be there in subsequent quarters after we close that transaction.
and Robert Burrows. Thank you.
Speaker Change: God, that's helpful. Well, thanks for taking my questions and that's the life with the rest of the quarter.
Thanks.
Speaker Change: And as a reminder, it is Star One, if you would like to ask a question, and your next question comes from the line of Mike Latimore with Northland Capital Markets. Your line is open.
Speaker Change: I'm sorry, can you repeat the question? Yes, what what percent of global intelligence customers are using the co pilot version?
Michael
Speaker Change: Well, that's a feature that's generally available through the product to all subscribers, so they all have the opportunity to engage with it.
Speaker Change: We don't disclose metrics around customer usage but it is something that was a broadly presented feature for the product.
Speaker Change: Yeah, this is Josh. I can just add qualitatively. As Jon was saying, we don't disclose down to that level of metric. I will say we have had very good usage of the FNGI co-pilot and
Speaker Change: Both in terms, again, of share of accounts, breadth of accounts, and frequency of visits and the likes. So we're very pleased with the metrics that we saw for that experience, but we don't get it.
Speaker Change: specific metrics to that level of detail. And then secondly, how are upsells and crosssells in the quarter for the co-pilot?
Speaker Change: Again, we don't disclose down to that level. Copilot, again, I can say generally was helpful or has been helpful in enabling those customers to discover new content, new products.
Speaker Change: They weren't otherwise using. It was a good channel to drive some product-led sales, but again we don't disclose metrics down to that level.
Thank you.
Speaker Change: And we have no further questions at this time. I will now turn the conference back over to the company for closing remarks.
Speaker Change: Thank you, Abby. This again is Bob Burrows. That concludes our call this evening and we appreciate everyone's participation.
Speaker Change: With any additional questions, please contact any of us at any time. Again, all the materials are witted as the company's fourth quarter and full year 24 financial results are available on the Fiscalnote website. We look forward to speaking with all of you again in the future. Goodbye.
Speaker Change: Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.